Returning to the gold standard makes so much sense — in theory. And even the briefest thought of taking control of the currency away from Washington sends a thrill down my leg. “Money they can’t monkey with,” would be a fine slogan for the campaign, don’t you think?
But getting back to a gold standard in practice reminds me a lot of asking for directions in Maine: “You can’t get there from here.” Where is the government going to get the gold? What price would sellers accept for it, given that our finances are in such good shape? And what confidence would people have in a new gold standard? After all, we used to have one, until it was squandered away by Washington, starting with FDR and ending with Nixon.
Fool me once, shame on me — now git yer cotton pickin’ hands off my gold.
There’s one way to get back to the gold standard I’d never thought of before: By fiat. And that’s what occurred to me when I read that gold just passed $1,800 an ounce, and is maybe on its way to $2,500 by year’s end.
That’s not to say the price of gold will go up forever. Obviously, no. Every bubble pops.
But what if we’re not seeing a bubble? Oh, the price will eventually rise too high and then come back down — but not all the way back down. But what if we’re witnessing something else? What if we’re seeing people move de facto to a gold standard — by fiat, to get out from under the endless piles of fiat paper money coming out of Washington.
I’m not saying there’s an organized movement to do so. If there is, nobody seems to be talking about it out loud. But millions of people acting in free markets are much smarter than any one person, such as — to pull a name totally at random out of my hat — Ben Bernanke.
People look to Washington, but Bernanke has just promised another two years of low interest rates. And that means you’re not going to get much return on your dollar. And there’s an inflation risk, too. Still.
People look to Europe, but they see that the euro is mortally wounded.
People look to China, and shy away in horror because even God doesn’t even know what a cabalistic Politburo will decide to do to the renminbi from one day to the next. People don’t even know if the Chinese government can survive intact if the economy there ever blows up.
Russia? Same story as China, only smaller and meaner.
Japan? They’ve got an indebtedness problem that makes Greece look like the U.S. look like Scrooge McDuck.
Where do you turn, when all the paper money is bad?
You turn to gold.
And what do you do when the U.S. defaults and the eurozone evaporates and China devolves into warlord states and Russia is still run by the mafia and Japan keeps sinking into the ocean?
I don’t mean to say that every one of those things will happen, or that even any one of them is likely to happen. But right now, it sure feels like the world is crumbling down around us.
So people, acting as individuals, might just be restoring the gold standard all on their own.
They’re hoarding gold against the financial apocalypse. Someday, after things calm down, they’ll want safer places to keep it — the basement or the panic room or the hole in the back yard are purely temporary measures.
People might find, after a while, that they’d be better off keeping their stash… in banks. And that those banks might find it convenient to issue scraps of paper representing their customers’ gold. And by that time, who will want to push around wheelbarrows full of old-style fiat dollars just to buy a loaf of bread?
This isn’t even a theory, of course. It’s merely a hypothesis, and not even a very strong one.
But I know what I’m seeing, and I haven’t yet lost faith in the ingenuity and, yes, thrift of a majority of Americans and a nice plurality of people around the globe. There doesn’t have to be a central actor to return us to a gold standard. All it takes is millions of people acting in their own, individual best interests to guide their hurting economies to a beneficial resolution — a sort of “invisible hand,” if you will.
Or, we could just be in another global blind panic which is causing people to flock to the one place they know is safe in a storm. After all, I’ve been wrong before and will be wrong again and there’s a very good chance I’m wrong right now.
But this time might just be different. The welfare state is nearing its tragic and demographically inescapable conclusion, just at the moment that governments around the world have lost their ability to control — or even sometimes influence — financial catastrophes. We’ve run out of strings to push to move an economy weighed down by unfunded liabilities it can never make good on.
The landing is going to be a hard one. But the recovery might just be hastened by the very same private currency Americans chased down on their way to closing the frontier: Gold.